Death and taxes may be unavoidable. Taken together, they become a firestorm.
The federal estate tax has been a hot-button issue since it was first imposed under the Revenue Act of 1916, when 10 percent was levied on portions of an estate exceeding $5 million.
The reason this one component of fiscal policy remains so hotly debated and highly politicized is because Americans are largely divided over its impact. Some believe it is a tool to prevent the concentration of wealth in the hands of a few, while others argue it is a hindrance to capital accumulation and curbs economic growth.
“There’s a fundamental ethical disagreement,” said Chris Edwards, director of tax policy studies at the libertarian Cato Institute.
“What would we rather Bill Gates do with his wealth? Go out and buy a bunch of yachts or houses or continue to save and grow his money?” he asked. “The rest of us should want that money saved and the estate tax works against that,” Edwards said.
“The estate tax creates an incentive for rich people to blow their money so they don’t have anything when they die.”
“That argument just doesn’t hold water,” countered Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center at the liberal Urban Institute.
“Actually the opposite is true,” he added. “A number of these estates are people who own closely held businesses and they are running their businesses as they would. The effects are much smaller than people think.”
“Effectively no one pays this tax except for the very, very wealthiest,” Gleckman said. “The story of family farmers having to sell their farm to pay the tax is a myth.”